IGST not applicable on goods outside India, input tax credit eligibility ruled irrelevant

The case involved the applicability of Integrated Goods and Services Tax (IGST) on the sale of goods located outside India and the eligibility of the recipient to avail input tax credit. The Authority ruled that the sale of goods located outside India is not liable to tax under section 7(5)(a) of the IGST Act, 2017. Consequently, the question of the recipient's eligibility to avail input tax credit was deemed irrelevant.

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Issues Involved:
1. Applicability of IGST on the sale of goods located outside India.
2. Eligibility of the recipient to avail input tax credit if IGST is applicable.

Detailed Analysis:

Issue 1: Applicability of IGST on the Sale of Goods Located Outside India

The applicant, engaged in the supply of bearings and tools, questioned whether the sale of goods located outside India would be liable to tax under section 7(5)(a) of the IGST Act, 2017. The transaction involves two stages:
- Transfer of ownership of tools from Schaeffler Germany to the applicant without physical movement of tools (T1).
- Transfer of ownership of tools from the applicant to the customer in India, with tools remaining in Germany (T2).

The applicant argued that:
- Levy of IGST cannot extend beyond territorial jurisdiction: The IGST Act extends only to the territory of India, and the tools are located outside India.
- Tax collection would be unconstitutional: Article 269A of the Constitution does not define the transaction where the supplier is in India, and the place of supply is outside India as inter-state supply.
- Cross-border transactions: These are covered under 'Inter-State supply' to exclude them from the purview of State Government, but this does not authorize IGST applicability.
- Zero-rated supply: Should be interpreted liberally to include goods delivered outside India.
- Place of Supply of Service: Unlike goods, services have specific provisions covering cases where the recipient is outside India.
- Circulars on High Sea Sales: These indicate that tax is leviable only at the time of importation into India.
- GST Returns: There is no mechanism to report transactions where the place of supply is outside India.
- Historical taxability: Such transactions were not taxable under erstwhile indirect tax laws.
- Double taxation: The transaction is already subject to EU VAT.

The concerned officer agreed, stating that since the goods do not move into India, IGST Act will not apply. Section 10(1)(c) of the IGST Act determines the place of supply as the location of goods at the time of delivery, which is outside India.

Observations:
The Authority examined the facts and found that:
- The applicant purchases tools from Schaeffler Germany, and the ownership transfers without physical movement.
- The applicant then transfers ownership to the customer in India, with tools still in Germany.
- The transaction is covered under section 7(5)(a) of the IGST Act, making it an inter-state supply.

However, as the goods are outside India, they do not cross the customs frontiers of India, and thus, no IGST is leviable until they are imported into India. The transaction is considered an exempt supply under section 2(47) of the CGST Act, as it is a non-taxable supply per section 2(78) of the CGST Act.

Conclusion:
The sale of goods located outside India is not liable to tax under section 7(5)(a) of the IGST Act, 2017.

Issue 2: Eligibility of the Recipient to Avail Input Tax Credit

Since the sale of goods located outside India is not liable to IGST, the question of the recipient's eligibility to avail input tax credit is rendered irrelevant.

Order:
- The sale of goods located outside India is not liable to tax under section 7(5)(a) of the IGST Act, 2017.
- The question of input tax credit eligibility is not relevant in view of the answer to the first question.

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